International Ice Hockey Federation (IIHF) has stripped Belarus of the right to hold the World Championship this year
Russian opposition activist Alexei Navalny arrested on arrival as he returns home
LONG READ: The oligarch problem
COVID-19 and Trump’s indifference helped human rights abusers in 2020
Russian opposition activist Navalny calls for supporters to take to the streets this weekend
One of Russia’s biggest wood product companies, Segezha could be Sistema’s next IPO
Oligarchs trying to derail Ukraine’s privatisation programme, warns the head of Ukraine’s State Property Fund
New Ukrainian VC firm QPDigital aims to invest up to $100 million in digital startups
VISEGRAD BLOG: Central Europe's populists need a new strategy for Biden
OUTLOOK 2021 Lithuania
EBRD says loan to Estonia’s controversial Porto Franco project was never disbursed
Czech Pirates and Mayors approve final coalition agreement for 2021 elections
OUTLOOK 2021 Czechia
OUTLOOK 2021 Hungary
BRICKS & MORTAR: Rosier future beckons for CEE retailers after year of change and disruption
OUTLOOK 2021 Slovakia
FDI inflows to CEE down 58% in 1H20 but rebound expected
BALKAN BLOG: US approach to switch from quick-fix dealmaking to experience and cooperation
Corona-induced slump in global clothing sector dragged down Albania’s 2020 exports
BALKAN BLOG: The controversial recipe for building up Albania
Heavy flooding causes chaos in parts of Southeast Europe
Turnover rose on Bosnia's two stock exchanges in 2020 while prices fell
Storming parliaments: New Europe's greatest hits
Bulgaria’s government considers gradual easing of COVID-related restrictions
Sofia-based LAUNCHub Ventures holds first close of new fund on €44mn
ING THINK: Growth in the Balkans: from zero to hero again?
Labour demand down 28% y/y in Croatia in 2020
Zagreb Stock Exchange's Crobex10 index at highest level since March 5
OUTLOOK 2021 Kosovo
Arrera Automobili aims to launch Albania’s first supercar
OUTLOOK 2021 Moldova
World Bank revises projection for Moldova’s 2020 GDP decline to 7.2%
Moldova’s PM resigns to prepare the ground for early elections
Montenegrins say state administration is most corrupt institution
75% of Montenegrins want EU membership
Montenegro’s new ruling coalition carves up top state jobs
North Macedonia's manufacturing confidence indicator down by 8.5 pp y/y in December
OUTLOOK 2021 North Macedonia
OUTLOOK 2021 Romania
Romania’s central bank cuts monetary policy rate by 25bp to 1.25%
Romanian construction companies' activity slows in November after intense 2020
OUTLOOK 2021 Serbia
Slovenia’s opposition files no-confidence motion against Jansa cabinet
Slovenia’s government to release funds to news agency STA after EU pressure
UK Moneyhub picks Slovenia for post-Brexit European base
Slovenia’s dire COVID-19 situation in 4Q20 caused second economic dip
ISTANBUL BLOG: Biden must find a way to work with Trump’s strongman pal Erdogan
Turkcell denies any affiliation with $1.6bn loan in default extended by Ziraat Bank to Virgin Islands company
BEYOND THE BOSPORUS: Let’s tentatively pencil in a date for Turkey’s hot money outflow
CAUCASUS BLOG : What can Biden offer the Caucasus and Stans, all but forgotten about by Trump?
Armenia ‘to extend life of its 1970s Metsamor nuclear power plant after 2026’
OUTLOOK 2021 Armenia
COMMENT: Record high debt levels will slow post-coronavirus recovery, threaten some countries' financial stability, says IIF
OUTLOOK 2021 Georgia
Georgia’s political kingpin Bidzina Ivanishvili quits politics
TEHRAN BLOG: Will Biden bet on a quick return to the Iran nuclear deal?
Tehran Stock Exchange chief quits amid “Black Monday” fury
Durov rejects Western funds’ offer to buy 5%-10% of Telegram with $30bn valuation
Central Asia vaccination plans underwhelm, but governments look unruffled
Fears of authoritarianism as Kyrgyz populist wins landslide and backing for ‘Khanstitution’
Mongolia's winter dzud set to be one of most extreme on record says Red Cross
Mongolian coal exports to China paralysed as Beijing demands virus testing of truck drivers
Mongolia fears economic damage as country faces up to its first local transmissions of coronavirus
Mongolia in lockdown after suffering first local coronavirus transmissions
OUTLOOK 2021 Tajikistan
OUTLOOK 2021 Turkmenistan
Turkmenistan: How the Grinch stole New Year
COMMENT: Uzbekistan is being transformed, but where are the democratic reforms?
Download the pdf version
More...
Three of Russia’s best known real estate investors have come together to form L.O.P. Urban Logistic, to develop urban warehousing that targets Russia’s booming last mile e-commerce sector.
The three partners are all serial entrepreneurs of the 1990s and noughties real estate market. Michael Lange is the founder of real estate Investment Company JLL Russia and ran the business for almost two decades during Russia’s boom years.
Jean Francois Ott and Michel Pascalis were working in the same market and founded Orco Property Group and MLP (Multinational Logistic Partnership) respectively.
Collectively the three have been behind developments worth over €10bn of investment over the last two decades, including iconic buildings, offices and shopping malls in Moscow and St Petersburg.
Now the market and economy is showing the green shoots of recovery, Lange, Ott and Pascalis have teamed up to create L.O.P. Urban Logistic, a Russian Real Estate Investment Trust (REIT) with the objective of building a portfolio of warehouses focused on servicing the booming e-commerce and last mile industry with an initial € 140 million fund raising campaigning starting in January 2020.
“We intend to rapidly become the premier partner of the Russian e-commerce industry, with a initial focus on Moscow: the largest European city,” Lange told. “While it is one of the most dynamic logistic real estate market, it is still largely under supplied and we see aligned improvements for real estate yields, lowering interest rate and raising rents at a time when the ruble has stabilised.”
Russia’s e-commerce sector is the most vibrant part of the economy. Already accounting for 4% of total retail turnover, the volume of e-commerce sales is expected to double in volume in the next few years as the sector is literally growing at ten times the pace of the real economy.
e-commerce turnover reached RUB725bn ($11bn) in the first half of 2019, up 26% from the same period a year earlier, according to research agency Data Insight, whereas the real economy grew a mere 1.3% in 2019, according to preliminary estimates.
During this period, 191mn orders were processed by Russian websites, up 44% y/y — the strongest growth rate ever recorded by Data Insight. The volume of orders in the first half of 2019 were as much as for the full year in 2016, Data Insight noted.
Average order value fell by 13%, which reflects more frequent and less sizeable orders. The stagnation of the population’s purchasing power in recent years may also have contributed to lowering the average purchase prices, noted East-West Digital News (EWDN) in its latest industry report.
While the overall sector is growing fast, growth amongst the leading e-retailers is even more pronounced as a group of market leaders emerge that will dominate the e-commerce business. Online retailers Wildberries, Ozon.ru and Apteka.ru have already established themselves as amongst the market leaders. Last year Wildberries overtook brick and mortar retailer Sportsmaster to become the biggest retailer of any kind in the fashion, clothes and apparel segment – the first time an e-retailer has become the market leader in any segment in Russia.
The sales volume of all these companies more than doubled in the first half of 2019 – after growing already by 73%, 74% and 59% respectively during the previous year, with Wildberries taking the title of biggest e-commerce site in Russia after it revenues topped $1bn in 2019.
However, logistics remains a challenge for all of Russia’s large e-retailers, which have been forced to develop their own logistics systems in order to grow their businesses. Although Pochta Rossii, the state-owned post office, has been through a radical reform and is investing heavily into its system, it is still unable to provide the quality of service e-commerce companies require.
“The logistical challenge the e-commerce companies are facing is the opportunity in the warehouse category. These companies need quality warehousing as close to urban centres as possible to effect their last mile delivery and be able to get their products to their customers quickly – on the same day as they are ordered, if possible,” says Lange.
The growth of e-commerce has already impacted the warehousing sector. While real estate development has been recovering slowly in the last two years on the back of a general economic recovery, the pace has been slow. Warehousing, however, has been the one segment of the business that has been growing quickly thanks to the ballooning demand from the e-commerce companies.
“The Russian warehouse market is entering a growth cycle with very attractive fundamentals compared other European markets,” says Lange. “There are double digit growth forecasts for the coming decade in Russia which will be driven by e-commerce companies that already account for 15-20% of Moscow’s warehouse market.”
The vacancy rate in the Moscow region warehouse market declined by 0.3 pp in the first three months of 2019, to 4.2%, according to JLL. The take-up volume in the first quarter of 2019 was 348,000 sqm, of which 60% of the deals were done on the secondary market. And warehouse completions reached 132,000sqm — almost double the level of the first quarter a year earlier, the latest data available. JJL was predicting that if all the announced projects in 2019 were completed the supply of warehouses would increase by 1.4 times compared to a year earlier.
However, Lange points out that most of the existing stock of warehouses is orientated towards traditional retail and needs to be modernised if it is cater to the needs of e-commerce companies.
“Our plan is to consolidate the Urban Logistic market, starting with Moscow, by re-habilitating existing warehouses when necessary,” Lange told bne IntelliNews.
Despite the recovery in warehouse development, the penetration in Russia remains very low by European standards with only 204 square meters per 1,000 population compared to 831sqm/1,000 in Germany, 561 sqm/1,000 in the UK and 381 sqm/1,000 in France.
Finally, investment sentiment towards Russia is improving as fears of new harsh sanctions imposed by the US on Russia faded over the second half of 2019. The Russian equity market returned a whopping 45% in 2019, only the third year this decade after 2010 and 2016 where it returned significant returns. Analysts are expecting the rally to continue in the first quarter of this year as political risk coefficients are being reduced that will spill over into other investment asset classes like real estate.
“The equity risk premium is continue normalizing toward the historic average of 6%. Sberbank is projecting some 250 bps of contraction in cost of equity, which translates into a P/E expansion from 6.7 to 8.0 (+20%). A 7% dividend yield increases the anticipated total return to 27%,” Cole Akeson, an analyst with Sberbank CIB, said in a note on December.
Register here to continue reading this article and 5 more for free or purchase 12 months full website access including the bne Magazine for just $250/year.
Register to read the bne monthly magazine for free:
Already registered
Password could contain only a-z0-9\+*?[^]$(){}=!<>|:-_ characters and have 8-20 symbols length.
Please complete your registration by confirming your email address.
A confirmation email has been sent to the email address you provided.
Forgotten password?
Email field can't be empty.
No user with this email address.
Access recovery request has expired, or you are using the wrong recovery token. Please, try again.
Access recover request has expired. Please, try again.
To continue viewing our content you need to complete the registration process.
Please look for an email that was sent to with the subject line "Confirmation bne IntelliNews access". This email will have instructions on how to complete registration process. Please check in your "Junk" folder in case this communication was misdirected in your email system.
If you have any questions please contact us at sales@intellinews.com
Sorry, but you have used all your free articles fro this month for bne IntelliNews. Subscribe to continue reading for only $119 per year.
Your subscription includes:
For the meantime we are also offering a free subscription to bne's digital weekly newspaper to subscribers to the online package.
Click here for more subscription options, including to the print version of our flagship monthly magazine:
More subscription options
Take a trial to our premium daily news service aimed at professional investors that covers the 30 countries of emerging Europe:
Get IntelliNews PRO
For any other enquiries about our products or corporate discounts please contact us at sales@intellinews.com
If you no longer wish to receive our emails, unsubscribe here.
Magazine annual electronic subscription
Magazine annual print subscription
Website & Archive annual subscription
Combined package: web access & magazine print annual subscription